When considering whether the costs of providing a given public service or capital project, the public sector often only considers the cost of the service omitting several other significant costs. An example of this happening occurred when the State of Florida performed a cost comparison of public and privately run prisons and found that the public prisons were seven percent more cost effective.1 A second, and more complete cost comparison found that the private prisons were actually much more cost effective with savings ranging from 14-27% depending on the facility.2 The critical difference between the comparisons was that the first did not include indirect administrative costs or compare the specific services performed by each prison facility.
Without an adequate assessment of the total costs of a project, the intended goals of the service may not be reached, additional costs may be incurred by taxpayers, and contracts may be terminated without knowing the true costs and benefits. Similarly, it can result in the public sector making improper investment decisions and a limiting of the possibility for public-private partnerships (PPP). Public-private partnerships allow governments to form partnerships for the provision of public services or capital projects through agreements with the private sector, while avoiding having to raise taxes or borrow funds.3 According to a 2007 survey commissioned by the Infrastructure Partnership Australia4, an advocate for PPPs in Australia, it was found that PPPs were more cost-efficient and more likely to be completed on time than traditional procurement strategies.5 Public projects are inherently risky and these risks vary depending on the nature of the project. Possible risks include changes in political mood, changes in available funds, and external factors that can change the timeline of a project to make it take longer and change the costs of a project to make it more expensive. The creation of a public cost comparator (PCC) is a way to quantify the costs and risks if the project were retained by government. Acting as a comparison bid, a PCC can be used as a decision making tool for public organizations when deciding whether or not to partner with a private company to provide a particular good or service. While PCCs have been used for decades around the world, they are still relatively new to the United States.
This study acts as a resource and guide for public sector agencies to use in conducting a PCC. In acting as a guide to public agencies completing a PCC, it also seeks to provide resources and give background information regarding the PCC as well as its importance, provide a thorough explanation of the steps to effectively execute a PCC, and examine best practices to enhance the PCC process. In following this process, this study aims to enable public and private organizations to better realize their own potential. This study and guide notes that it is important to understand the PCC in context-it is but one piece of a cost benefit analysis (CBA) or a Value for Money (VfM) assessment.
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1 Gilroy, L. C., & Moore, A. T. (2011). Corrections 2.0: a proposal to create a continuum of care in corrections through public-private partnerships. Reason Foundation Policy Brief, 94, 1-25.
2 Gilroy, L. (2011, February 4). Corrections PPPs delivering cost savings in florida. Out of Control Policy Blog. Retrieved April 10, 2011, from http://reason.org/blog/show/corrections-ppps-florida-savings
3 Akintoye, A., & Beck, M. (2009). Policy, Finance & Management for Private-Public Partnerships. Oxford, United Kingdom: Wiley-Blackwell.
4 National Cooperative Highway Research Program (2009). Public Sector Decision Making for Public-Private Partnerships: A Synthesis of Highway Practice. Transportation Research Board of the National Academies. Washington, D.C.
5 Savas, E. S. (1987). Privatization: the key to better government. Chatham, N.J.: Chatham House Publishers.